The retail note - 9 May 2017
Stephen Springham, Head of Retail Research, breaks down the latest sector headlines.
4 minutes to read
- April’s retail sales figures were even stronger than we anticipated. According to the BRC (whose figures are typically lower than the official ONS ones), retail sales in April soared by 6.3%, or 5.6% on a like-for-like basis. The timing of Easter was an obvious distorting factor, but even making allowances for this and looking at the full year-to-date performance, retail sales are still holding up far better than is being credited.
- In the wider three month period to 29 April, food sales increased 2.4% like-for-like and 3.6% overall. Strong trading figures from Morrisons (+3.4% like-for-like sales growth for the 13 weeks to 30 April) underlined its status as the top performer of the “Big Four”. Sainsbury’s performance was harder to gauge on account of the integration of Argos. Annual group sales for the 12 months to 11 March grew 12.7% to £29.1bn, but like-for-like sales were down 0.6%.
- Over the same three month period non-food sales inched up 0.3% on a like-for-like basis and 0.7% overall, albeit with fairly minimal inflation. Next reported an in-line with expectation 2.5% decline in total sales for the past three months and tightened its full-year profit guidance from £680m - £780m to £680m - £740m. Monsoon reported a 9.2% decline in full year sales to £422.1m for the year ended 27 August 2016. UK like-for-like sales fell 6% as the business works on a turnaround strategy, separating its Accessorize chain from the main fascia and developing its online proposition.
Stephen Springham, Head of Retail Research:
Retail and leisure have always been close bedfellows, but the relationship is changing. As we explore in depth in our latest Retail Newsletter “Welcome to the Leisure Dome” (see accompanying link), leisure is no longer a poor relation to retail – in recent years, leisure (and food & beverage in particular) have evolved from being space-filling, low rent after-thought to front-of-house revenue-generating necessity.
What has driven this change? As with virtually everything in retail, consumer behaviour lies at its core. Slowly but surely, the UK has emerged as a nation of leisure lovers, splashing out an estimated £238 billion last year on leisure pursuits. Expressed another way, broadly £1 in every £5 spend in this country is channelled into some form of leisure-based activity. The durability of this spend is often called into question, particularly as macro-economic conditions tighten, but there is evidence to suggest that consumers have reprioritised their budget allocations – enjoying ourselves is no longer a privilege or a luxury, it is a priority.
Eating out is both the largest and most conspicuous facet of the leisure market. And F&B remains a high growth market. The historic “rule of thumb” was that F&B typically made up 6%-7% of floorspace in a shopping centre. In newer schemes, such as Trinity Leeds, this proportion is typically 20%+. On the one hand, leisure has a vital role to play in creating the “sense of place” needed to leverage a successful retail destination. On the other hand, its role is equally commercial, with F&B operators willing and able to pay a full rent to occupy appropriate retail space.
The “chase for space” has created something of a polarized market geographically. Some perceived “hot spots” are actually over-supplied and rental levels in some areas are unsustainable. This is particularly (but not exclusively) an issue in both Central and Outer London, where the “wall of costs” (business rate revaluations and national wage increases) is putting a renewed strain on many operators. Conversely, at the other end of the spectrum, there are still plenty of towns and locations that do not have an adequate F&B proposition – in the Newsletter, we suggest where these may be.
But there is more to leisure than just F&B. Diversity is one of the hallmarks of the leisure sector and new and innovative concepts and formats continue to hit the market. There are already more than 100 trampoline parks in the UK and we are delighted to include an interview with David Stalker, CEO of Oxygen Freejumping, in our Newsletter. Likewise, Hugh Knowles, Operations and Development Director of Adventure Leisure, who have developed a scaled-down, fun, family-version of golf. While the rise of “competitive socialising” is spawning a raft of new concepts, even leisure stalwarts such as cinemas and ten pin bowling are evolving considerably and being given a new lease of life.
Diverse, vibrant, innovative and high growth – everything retail should be, but all too often comes up short? No wonder the balance of power between retail and leisure has shifted.
Read the latest Knight Frank Retail Newsletter 2017 - Issue 5